How to Increase Service Firm Profitability

Services firms are not that different than product based firms.  The primary difference is that the product they sell is time.  While this product is not kept in a secure warehouse, it is just as valuable and can be lost or wasted.  Once gone there is no getting it back and this will impact profitability.  That is why it is so critical to use a time management system to manage time very closely. 

Since time is our inventory we should manage it like inventory.  How much is available for sale?  Do you need to (or can you) get more of it?  How much of it is wasted or unsold?  How much can you sell it for?  And what is your profit margin on a unit of time?

These and many more questions can be answered by proper time management.  When implementing a time management system the following should be considered:

• Accessing and using the system should be easy

• The system should meet your business needs

• It should integrate with your other systems

• Timesheets should be approved by management

• All time should be tracked and analyzed

Make it Easy to Enter Time

Managing your time and the time of your team members starts with data capture.  Therefore it makes sense to ensure that your timesheet system is easy to access regardless of where your employees are.  Offline, online, or mobile capabilities provide anytime, anywhere entry of time.   If the system is difficult to access or is difficult to use then employees will be less inclined to use it.

Daily entry of timesheets has proven to improve accuracy of data capture and ensures that all billable time is fresh on the minds of those entering.  If your business lends itself to real time data capture by logging in and starting and stopping a timer then that would be best. 

Unfortunately, many firms cannot utilize this functionality and will need to capture data on a daily or weekly basis.  At a minimum timesheet should be entered weekly so that management can review time entry, manage projects, and bill clients.

Set the System up Right

When implementing a timesheet management system make sure that it meets your business needs.  You should setup or configure the system to reflect how you do business and track time at a level that makes sense for your firm. 

For example, if you are a project based firm, you may want to create projects and charge time to them at a task or phase level.   When doing so, set up standard cost categories that represent these levels so that employees understand where to charge their time.  Creating timesheet templates can help with setting up new projects and provides structure that employees become familiar with. 

Decide what type of data is important to track and make the most important data elements a required field so that you have consistency of data entry.  For example, you may include a note field that provides a space to enter the description of the service performed.  This makes it easier for management to review task entries.

Integrate with Other Systems

Your timesheet management system should also integrate seamlessly with your other systems, such as your billing system and your payroll system.

A common inefficiency of many firms is the duplication of data entry.  Entering data into a timesheet system and then having to enter the data into a payroll or billing system creates unnecessary work and wastes time of administrative and billable staff.  

Many timesheet systems are part of a larger suite of systems and are already integrated; however, there are many systems that are standalone.  When making a selection, be aware of the system’s ability to pass data between other systems. 

Timesheet Approval by Management

Timesheet review and approval provides accuracy of data and a consistent billing experience for your clients.  To facilitate this process, set up an approval workflow that conforms to your policies and procedures. 

You can set up approvals based on projects or customers.  Or a multi-level approval approach could be setup to allow for approvals by dollar amount or type of service or business line.  Approval workflows can eliminate the inefficiencies that are often experienced when documents are physically passed around or emailed to many parties in the approval chain.

Track all Time

A good time management system will also provide the ability to track different types of time.  As a service firm you may sell your time by the hour, offer fixed price projects, or require periodic retainers.  Capturing all time regardless of what type it is helps you manage time better.

When tracking both billable and non-billable time you are better able to manage time “on the beach” when a billable resource has no projects to work on and you will get a better sense of the true costs of the project by know the total amount of time expended.  This is especially true for fixed price projects where it becomes easy to either load the project with dead time or exclude time to make the project look better.

Once total time is known for a project it will be that much easier to estimate future projects of a similar nature allowing you to price it right from the outset.  This will improve profit margins by increasing your revenue and reducing the amount of unproductive time.

Putting it Into Practice

Service firms that don’t take time management seriously are losing profits by not capturing all billable time and by not reducing unproductive time.  A cloud based time management system like NetSuite’s OpenAir provides the ability to enter time anywhere and at any time.  It has an easy to use interface that employees and management can understand and learn quickly. 

As part of the NetSuite ERP suite OpenAir integrates seamlessly with other modules and eliminates duplication of data entry.  And it is scalable so it can grow with your business.   With NetSuite’s built in workflow capabilities you will be able to define approval processes that meet your business specific needs and provides efficiencies you have yet to experience.

At Business Solution Partners we specialize in assisting our clients with implementing and setting up ERP and time management systems.  We are a service firm just like you and, as a result, understand your needs first hand.  Contact us or give us a call at (516) 609-5000 to get started today.

About the Author:

Martin Begley, CISA, is Director of Management Consulting Services at Business Solution Partners and is a Certified Information Systems Auditor (CISA).  He specializes in helping small and mid-sized businesses meet their strategic goals through designing, implementing, and executing performance management strategies, technology solutions, and corporate policies and procedures.  You can follow him on LinkedIn at www.linkedin.com/in/martinbegley/​